Since 2005, British people have lent hundreds of millions of pounds to complete strangers after Zopa launched the peer-to-peer lending concept in the UK. It's a simple and popular idea to use the internet to link lenders with borrowers, but it's also risky. For example, lenders do not qualify for the government-backed Financial Services Compensation Scheme.

Now a major British agricultural co-operative has come up with a refinement of peer-to-peer lending that radically reduces the risk. Anglia Farmers acts as the intermediary between co-op members who have spare capital to invest and other members in need of short-term loans. Borrowers pay 6% interest per year which, after a small service deduction by Anglia Farmers, is passed directly to the lenders. The scheme, which launched in April last year, saw approximately £1.3m borrowed in its first nine months of operation, and another £1.5m has been borrowed this year.

It is, according to Anglia Farmers' chief executive Clarke Willis, a very straightforward concept: "The legal framework is extremely simple, all you need is a consumer credit licence."

Anglia Farmers – a co-operative with more than 50 years of history that turns over about £250m a year – has set up a wholly owned subsidiary, AF Finance, to handle the scheme, which is administered by a former Barclays Bank manager. Funds from lenders are pooled, so the risks of default are also shared between all lenders.

However, Willis believes the scheme can be run without problems. The secret is not just that lenders and borrowers have membership of the co-operative in common, it is that Anglia Farmers, which handles risk analysis, has in-depth knowledge of members' creditworthiness through the business it conducts with them each year.

About 3,000 farmers reduce their costs by purchasing fertiliser, seeds, agrochemicals, farm fuel and other supplies they need through their membership of Anglia Farmers. On average, each member does £85,000 of business with the co-operative each year meaning, as Willis points out, the organisation has a detailed knowledge of each member's trading history, in many cases going back decades.

Willis said: "We have more information available to us than a bank would have."

The small number of members who may have had direct debits rejected in the past are automatically ineligible for peer-to-peer lending.

The challenge in running the scheme is in balancing the money coming in with the amount wanted by borrowers. So far, about 35 members have become lenders and 70 have borrowed. The evidence suggests there is a sizeable pool of further capital available if the demand was there.

According to Willis, the co-operative first explored the possibility of setting up a credit union for its members but decided on peer-to-peer lending because of the relatively small amounts of money a credit union could lend. By contrast, the minimum that members can lend through peer-to-peer lending has been set at £5,000 and many have already put in tens of thousands of pounds. Loans tend to be for smaller amounts, and are short-term – Anglia Farmers runs the scheme so all loans are repaid by its financial year-end, an arrangement that saves it from having to engage in members' income tax affairs – so the maximum repayment term is 12 months.

Many farmers in the UK need short-term working capital while their crops grow or their livestock fattens up for market. In Australia, farmers can take bank loans against crops sown but not yet harvested whereas British farmers are likely to have to seek overdraft facilities. Anglia Farmers' peer-to-peer scheme offers a much cheaper and more straightforward alternative.

For Willis, one of the speakers at this year's Co-operative congress, it's an idea that has plenty of scope for development: "It's innovative, but it's also really simple."